Financing - Factoring

[kroshka]

I am aware of that "factoring" based on invoices is possible in Indonesia.

Anybody aware of ways of financing based on sales contract (buyer is a big reputable Indonesian company - supplier is newly established company (less than one year). Needed period for financing is 2-3 months for the supplier to prepared before invoice can be issued).

Appreciating your input

 

[rabbit_39]

Bridge financing. Probably end up with private equity loans. Or collateral based bank loans.

 

[kroshka]

I guess it is not that hard to get a loan, if the company had traditional collateral, but the collateral it has is the contract, and it needs financing to execute the order. So other places I know of have financing companies, who also finance the seller in those situations, but I am not aware of it such also exist in Indonesia..

 

[rabbit_39]

Yes, I know that kind of financing exist in other places. Banks in Indonesia has no clue about how to assess and execute non-recourse finance. Which is what you're trying to do here out of necessity (no collateral and no balance sheet).

Specifically for what you're trying to do, it is called bridge financing. Often done to cover the construction period of an income generating project, or in your case just to buy the product on a trading deal.

In Indonesia, as I mentioned, for this kind of financing, your best bet would be a private equity loan. Some private entity, not a bank, will loan you the money at a higher rate than a bank's corporate loan (balance sheet lending). Sometimes quite high.

In Indonesia, some well established industries have these types of loans based on the contract value. For example I know that some banks have deals specifically for cell phone tower construction projects. They'll lend the money to fairly established construction companies who have won the contract to build xx number of towers. And the banks will loan up to 70 to 80% of the contract value.

But for you, again, your only choice is likely to be the private equity path. Out of curiosity, what industry is this for and what's the amount you're looking for?

 

[Smallworld]

Based on your very enigmatic description only private investors comes to my mind to help young companies with cash flow.

 

[jstar]

So what factoring companies was kroshka talking about? Do they really exist here?

 

[rabbit_39]

https://datafox.com/keywords/factoring/Jakarta, Indonesia
http://www.ifscapital.co.id/?page_id=1670

Just a quick Google.

 

[brian@bekasi]

A word of warning to any company considering factoring, it is a recipe for disaster. In essence you bring forward your cashflow and are paid by the factoring company at the time of invoicing. These companies including banks, charge high fees which over time substantially erode margins and put the profitability of your company at risk. In Australia banks generally will not entertain a factoring arrangement unless
the company has contract in place which guarantee cash flows.

Unfortunately contracts don't last forever and when the contracts cease so does the company that entered into the arrangement as they have little in reserve to keep trading.

 

[rabbit_39]

This is more of a bridge loan than anything else. There is only the one customer payment to worry about.

There are many project finance deals especially in the clean energy sector lately. Banks will loan on the strength of the project's assets and future cash flow alone. These are 5 to 10 year loans. They're so popular that there are even insurances against loan repayment defaults, cash flow guarantees, etc.

But bridge loans are absolutely expensive, no doubt about that.

 

[Zavia]

Im not so familiar with financial terms, but isnt this a BA, bankers acceptance?
Like I give to my bank my customer's PO/INV/DO, the bank pays me today the amount minus admin fee and % based on term length, then my customer at the end of the term pays the bank?